14 Business Finance Terms Every Borrower Should Know

Business finance comes with its own language. Understanding key terms helps you speak with lenders confidently and ask better questions.

This covers 14 essential terms you'll encounter when applying for commercial finance in Australia.

Core Regulatory and Rate Terms

APRA

Australian Prudential Regulation Authority. This independent body supervises banks, insurers, and super funds. APRA sets lending standards that affect how much you can borrow and what documentation lenders require.

BBSW

Bank Bill Swap Rate. A benchmark interest rate that influences commercial lending rates. Many business loans price off BBSW plus a margin. When BBSW moves, your variable rate loan repayments may change.

See also: Business Loan Rate Types: Variable vs Fixed Rate Commercial Lending

Security and Risk Assessment

Collateral

Assets you pledge to secure a loan. This gives lenders recourse if you default. Common collateral includes property, equipment, or stock. The type and value of collateral affects your interest rate and loan amount.

LVR

Loan-to-Value Ratio. Your loan amount divided by the asset value, expressed as a percentage. A $400,000 loan against a $500,000 property equals 80% LVR. Lower LVRs typically mean better rates and terms. LVR limits vary by lender and are subject to individual assessment.

Ready to discuss your options? Book a Strategy Session with Key Choice Lending.

GSA

General Security Agreement. A legal document that gives lenders security over your business assets. This includes current and future assets like stock, equipment, and debtors. Previously called a "floating charge".

G&I

Guarantee & Indemnity. Personal guarantees make you personally liable for business debts. An indemnity covers losses caused by third parties. Both create personal exposure beyond your business assets.

Financial Performance Metrics

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortisation. This shows your business's operating performance before accounting and financing costs. Lenders use EBITDA to assess cash flow and borrowing capacity.

DSR

Debt Service Ratio. Compares your total debt repayments to EBITDA. A DSR of 1.5 means EBITDA covers debt repayments 1.5 times over. Lower DSRs indicate stronger repayment capacity.

See also: Business Borrowing Capacity Assessment: ICR, DSR and EBITDA Multiples Explained

NPAT

Net Profit After Tax. Your bottom-line profit after all expenses, interest, and tax. NPAT shows actual money available to owners and influences borrowing capacity calculations.

ROE

Return on Equity. Measures how efficiently you use shareholder funds to generate profit. Calculated by dividing NPAT by total equity. Higher ROEs may support larger borrowing limits.

Repayment Structures

P&I

Principal & Interest. Standard repayments that reduce your loan balance over time. Each payment covers interest charges plus a portion of the principal. Builds equity but requires higher repayments than interest-only options.

IO

Interest Only. Repayments cover interest charges without reducing the principal balance. Lower repayments but no equity building. Typically available for limited periods on commercial loans.

Risk and Assessment

Default Interest

Higher interest rate charged when you breach loan terms. Usually 1-3% above your standard rate. Applied to overdue amounts or the entire loan balance, depending on your loan contract.

Serviceability

Your capacity to meet loan repayments based on income and expenses. Lenders calculate serviceability using your financial statements and cash flow projections. Strong serviceability supports larger borrowing amounts, subject to lender assessment.

Using This Knowledge

Understanding these terms helps you prepare for lender meetings and ask informed questions. You'll better understand loan proposals and negotiate from a position of knowledge.

Different lenders interpret these metrics differently. Some focus heavily on DSR, others prioritise LVR or serviceability. An experienced broker can explain which lenders suit your financial profile and help you present your application in the strongest light.

Key Choice Lending has access to 72+ lenders and has supported Australian borrowers through more than $1 billion in transactions. Founder Matthew Clark is a two-time Amazon bestselling author and Better Business Award winner. Book a Strategy Session - no obligation, focused on your situation.